Thank You

Error.

Correction: While Ford's chief financial officer, Lewis Booth, is skeptical of the relevance of share buybacks to large cyclical companies, he denies having said that they would be instituted only "over my dead body," as this article on the auto maker reported. Ford also has indicated that it hopes to reinstitute dividends in the near future.

He may be right, even if investors haven't noticed. The stock (ticker: F) fell 8% last week, to about $12, as the company reported an 8% drop in earnings, to 59 cents a share from 61 cents a year earlier. Adding to the worries was uncertainty over labor negotiations with the United Auto Workers, which began last Friday. It all left the shares trading at an attractive 6.1 times estimated earnings for the year ahead. Some analysts figure the stock could easily top $15.

The 2011 Mustang recaptures some of Ford's former glory.
Ford Motor Company

The fact is, Ford is firing on all four cylinders. Despite the lousy economy, revenues jumped 13% in the second quarter, continuing a steady upward trend. And, thanks to the operating cash flow, the company continued paying down the heavy $23 billion in debt it took in 2006 to get through Detroit's crisis;
General MotorsGM 0.5051847912789151%General Motors Co.U.S.: NYSEUSD37.8
0.190.5051847912789151%
/Date(1425420057949-0600)/
Volume (Delayed 15m)
:
9815203AFTER HOURSUSD37.627
-0.172999999999995-0.4576719576719577%
Volume (Delayed 15m)
:
212807
P/E Ratio
21.6Market Cap
60565864994.1199
Dividend Yield
3.1746031746031744% Rev. per Employee
721893More quote details and news »GMinYour ValueYour ChangeShort position
(GM), on the other hand, headed for bankruptcy. Ford paid off $2.6 billion of the debt in the last quarter, shaving the total to $14 billion. That could well drop to $12 billion by the end of the year.

Once uncertainties about the course of the labor talks begin to clear, Ford could and should see its credit rating lifted from Ba2 (from Moody's) and BB-minus (Standard & Poor's), reclaiming investment grade. That, in turn, would sharply cut the company's cost of borrowing.

Another target for spending is product development, something critically important in an industry where new metal nearly always outsells old. Ford plans to introduce 16 new cars in China and India over the next four years, with the aim of significantly expanding its presence in markets that are among the biggest and fastest-growing in the world. Ford so far has been a laggard in China, where it holds a market share of about 3%, while General Motors has 15%.

Getting in Gear

Ford has been boosting revenue and steadily cutting down a mountain of debt it took on in 2006.

Ford is also spending on cars for the U.S. market, putting cash into planned new Lincoln models and launching a complete makeover of the Fusion sedan along with new "eco-boost" engines for the Explorer and Edge. The Ford car division's U.S. sales rose 20% in the first half of this year, boosting its market share almost a full point, to 16.2%. Ford won extra sales and was able to command higher prices for its cars as the availably of Japanese models slumped following the earthquake and tsunami. Toyota sales fell 4% and Honda sales rose only 2% in the first half.

UNLIKE GM, WHERE the inventory level of cars and especially trucks on dealers' lots are high, Ford's inventory is under control. Ford dealers had a 36-day supply of vehicles as of July 1, compared with 68 days for GM. This gives the company "room to control production in a manner to win market share and boost margins," says Patrick Archambault, an analyst with Goldman Sachs.

While Ford's market share is likely to decline as the Japanese make a comeback, "I expect its own sales to continue rising in absolute terms as it addresses inventory constrains and as dealer traffic picks up," Archambault added.

The Bottom Line

Ford's shares could jump 25% as the company steps on the gas. Its biggest opportunities: China and India, where it so far has been a laggard.

One big question mark at Ford is just what the company plans for its ever-increasing cash hoard, which could hit $10 billion early next year. Investors are likely to press for a special one-time dividend or stock buyback, but they will just as surely face resistance. Chief Financial Officer Lewis Booth simply isn't a fan of the idea. "We will review all options," he told Barron's. "Over my dead body," he was heard to whisper at a recent meeting with analysts.

If Booth were to lighten up a little, this turbocharged machine would be fully loaded.